The Real Multiplier (II)

In truth, the Keynesian multiplier is a mathematical fiction, as explained here, and government spending is in fact destructive of economic growth, as discussed here and in some of the posts listed at the end.

From “The Real Multiplier“:

My own analysis of post-WWII statistics (for 1947-2010) yields a multiplier for G of 0.8. That is to say, every additional dollar of government spending has led to a 20-cent reduction in non-government spending. To put it another way, the real effect of additional government spending is the shrinkage of the private sector. (Which makes sense, when you stop to think about it.) Thus the irrelevance of the multiplier: What good is more government spending if it shrinks the private sector, where real products and services are produced?

I may have been too generous. Valerie A. Ramsey, of UC San Diego and NBER, writes:

…For the most part, it appears that a rise in government spending does not stimulate private spending; most estimates suggest that it significantly lowers private spending. These results imply that the government spending multiplier is below unity. Adjusting the implied multiplier for increases in tax rates has only a small effect. The results imply a multiplier on total GDP of around 0.5. (“Government Spending and Private Activity,” January 2012)

Ramsey’s thorough analysis trumps my back-of-the envelope calculation. The government-spending multiplier is 0.5 — and don’t you forget it, Paul Krugman.

UPDATE: Daniel J. Mitchell offers much additional evidence about the high cost of government spending.

Related posts:
A Social Security Reader
The Price of Government
The Commandeered Economy
Rationing and Health Care
The Perils of Nannyism: The Case of Obamacare
The Price of Government Redux
More about the Perils of Obamacare
Health-Care Reform: The Short of It
The Mega-Depression
Presidential Chutzpah
As Goes Greece
Ricardian Equivalence Reconsidered
The Real Burden of Government
Toward a Risk-Free Economy
The Rahn Curve at Work
The Illusion of Prosperity and Stability
The “Forthcoming Financial Collapse”
Estimating the Rahn Curve: Or, How Government Inhibits Economic Growth
The Deficit Commission’s Deficit of Understanding
Undermining the Free Society
The Bowles-Simpson Report
The Bowles-Simpson Band-Aid
Build It and They Will Pay
Government vs. Community
The Stagnation Thesis
Social Justice
Taxing the Rich
More about Taxing the Rich
More Social Justice
The Evil That Is Done with Good Intentions
America’s Financial Crisis Is Now
Money, Credit, and Economic Fluctuations
A Keynesian Fantasy Land
“Tax Expenditures” Are Not Expenditures
The Keynesian Fallacy and Regime Uncertainty
The Great Recession Is Not Over
Why the “Stimulus” Failed to Stimulate
The “Jobs Speech” That Obama Should Have Given
Regime Uncertainty and the Great Recession
Vulgar Keynesianism and Capitalism
Why Are Interest Rates So Low?
Don’t Just Stand There, “Do Something”
Economic Growth Since World War II
The Commandeered Economy
Estimating the Rahn Curve: A Sequel